Barry Knibbs & Others v Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeLord Justice David Richards
Judgment Date17 October 2019
Neutral Citation[2019] EWCA Civ 1719
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2018/0765 and C1/2018/3074
Date17 October 2019
Between:
Barry Knibbs & Others
Appellants
and
Commissioners for Her Majesty's Revenue and Customs
Respondents
And Between:
The Queen on the application of Robert Astley & Others
Appellants
and
Commissioners for Her Majesty's Revenue and Customs
Respondents

[2019] EWCA Civ 1719

Before:

Lord Justice David Richards

Lord Justice Henderson

and

Lord Justice Moylan

Case No: A3/2018/0765 and C1/2018/3074

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS (REVENUE LIST)

Sir Nicholas Warren

AND ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Mr Justice Ouseley

Royal Courts of Justice

Strand, London, WC2A 2LL

David Ewart QC and Charles Bradley (instructed by Jefferies Essex LLP) for the Appellants

Vikram Sachdeva QC and Marika Lemos (instructed by HMRC Solicitors Office) for the Respondents

Hearing dates: 11–13 June 2019

Approved Judgment

Lord Justice David Richards (giving the judgment of the court):

Introduction

1

This is the judgment of the court to which all members of the court have contributed.

2

There are before the court (i) an appeal, brought with permission granted by Lewison LJ, against an order of Sir Nicholas Warren dated 16 April 2018 striking out proceedings brought under CPR Part 7 in the High Court, and (ii) an application for permission to appeal against an order of Ouseley J dated 5 December 2018 whereby he refused permission to proceed with an application for judicial review. Knowing that permission to appeal had been given in the Part 7 proceedings, Ouseley J sensibly followed Sir Nicholas' decision without analysing the issues independently.

3

Both cases raise essentially the same substantive issues of tax law, and the six applicants in the judicial review proceedings were claimants in the Part 7 proceedings. Following a four-day hearing, Sir Nicholas Warren concluded in a substantial and fully reasoned judgment that the claims in the Part 7 proceedings were not sustainable. He accordingly struck out the claims. He also struck out the claims on the ground that it was an abuse of process by the claimants to pursue claims in Part 7 proceedings rather than by statutory appeal to the First-tier Tribunal (FTT) or, where such an appeal would not be available, by way of judicial review.

4

On considering the application for permission to appeal in the judicial review proceedings on the papers, Singh LJ directed that the application should be listed with the appeal in the Part 7 proceedings, with the court free to decide, if permission were granted, whether to hear the application for judicial review itself or to remit it to the Administrative Court.

5

The claimants in both cases are taxpayers who participated in tax avoidance schemes, either directly or through partnerships, mainly involving investments in films. It has been held in other proceedings that the relevant schemes failed to generate the intended losses for set-off against taxable income. Nonetheless, it is the claimants' case that, as a result of what is said to have been the failure of the Respondents (HMRC) to make the requisite enquiries within the applicable time limits, they are entitled to the benefit of their claims for loss relief, such that HMRC either must repay tax that has been paid or are not entitled to require payment of the tax that is otherwise due.

6

The claimants made claims to set losses (purportedly) sustained in one year of assessment (Year 2) against income of one or more previous years (Year 1) (carryback claims). They allege that HMRC did not enquire into these claims under schedule 1A to the Taxes Management Act 1970 ( TMA), while it is HMRC's case that in some cases they did so. It is the claimants' case that, in the absence of such enquiries within the relevant time limits, the carry-back claims became final and HMRC were obliged to give effect to them. Those claimants whose claims had not been allowed by HMRC claimed declarations that HMRC were obliged to give effect to them and orders for payment of sums due as a result of doing so. The claimants whose claims had been given effect by HMRC claimed declarations that HMRC were not entitled to reverse them.

7

Following the hearing but before Sir Nicholas Warren gave judgment, the Supreme Court delivered judgment in The Queen (on the application of De Silva) v Revenue and Customs Commissioners [2017] UKSC 74, [2017] 1 WLR 4384 ( De Silva), affirming the decision of this court. The parties made submissions in writing on the decision. HMRC's position on this appeal is that the Supreme Court's decision is conclusive in their favour and that they are entitled to enquire into the carry-back claims by means of enquiries under section 9A of TMA into the claimants' self-assessment tax returns for Year 2 or under section 12AC into partnership returns. The claimants accept that De Silva binds this court to reject the appeals of those claimants whose Year 2 was 2006/07 or earlier, but they submit that it does not apply to those claimants whose Year 2 was 2007/08 or later, as a result of the Income Tax Act 2007 (ITA).

8

The actions in the High Court were very oddly constituted. Six sets of proceedings were issued, each with a large number of claimants. The total number of claimants runs into the hundreds. Two further claims were issued by a named claimant “for and on behalf of the Affected Taxpayers (as defined in the particulars of claim)”. None of the facts relevant to each claimant was pleaded. The justification was said to be that the cases raised generic issues applicable to all the claimants. If this is indeed the case, the obvious course would have been to make one or more group litigation orders and to identify lead cases. Those lead cases would have been fully pleaded.

9

In this judgment, we address first the procedural issue, whether the claimants' Part 7 claims were an abuse of process, and, second, the substantive issues of tax law raised by the appeal.

Procedural issues

10

The appropriate procedure to be adopted by the claimants in challenging HMRC's refusal to give effect to their carry-back claims is to be judged by reference to the claims asserted by them in the High Court proceedings, together with any other relevant information.

11

The claims, although made in some six separate proceedings on behalf of a large number of claimants, were in generic and common form. It was pleaded in the particulars of claim that the carry-back claims fell within schedule 1A to TMA and that in all cases the claims were made by letter or by filling in boxes on their self-assessment tax return forms (whether by amendment or otherwise) for a prior year or for Year 2. In some cases, the claimants' income tax self-assessments for the year in which the loss was said to have been suffered included relief in respect of the loss.

12

The particulars of claim pleaded that none of the claimants had received a notice of enquiry pursuant to paragraph 5(1)(a) of schedule 1A to TMA and that the periods in which such notices could have been issued had expired pursuant to paragraph 5(2). If such notices had been given, the obligation (if any) to give effect to the claims would have been suspended under paragraph 4(1) until the “day on which, by virtue of paragraph 7(1) below, the enquiry is completed”. They allege that, as no enquiry under schedule 1A had been opened, HMRC were obliged to give effect to the claims. In failing to do so, HMRC were in breach of statutory duty. Declarations and orders for payment, where repayments of tax were said to be due, were claimed.

13

The particulars of claim referred to the notices of enquiry under section 9A of TMA, and deemed notices under section 12AC, received by some claimants. It was pleaded that those enquiries could not relate to the carry-back claims as they were not made within a return for the purposes of the relevant provisions of TMA (sections 8(1), 9, 9A and 42(11)(a)), even if the claims were made by filling in boxes in tax return documents.

14

There is no dispute that enquiries were not opened under schedule 1A in most cases. It is thus apparent that the real dispute was whether HMRC were entitled to open enquiries under sections 9A and, in the case of partnership claims, under section 12AC.

15

Having opened enquiries under section 9A into individual returns, an officer of HMRC is obliged by the statutory scheme to complete the enquiry and issue a closure notice under section 28A of TMA, stating the officer's conclusions. The closure notice must either state that no amendment of the return is required or make the amendments required to give effect to the conclusions. Unreasonable delay in the issue of a closure notice can be dealt with by an application to the FTT for a direction requiring the officer to issue a closure notice: section 28A(4)-(6).

16

If the taxpayer is dissatisfied with the results of a closure notice, an appeal lies to the FTT.

17

It is well established that if Parliament has laid down a statutory appeal process against a decision of HMRC, a person aggrieved by the decision and wishing to challenge it must use the statutory process. It is an abuse of the court's process to seek to do so through proceedings in the High Court or the County Court. In Autologic Holdings plc v Inland Revenue Commissioners [2005] UKHL 54, [2006] 1 AC 118, Lord Nicholls of Birkenhead, giving the majority judgment, said:

“11. In resolving this question of jurisdiction the starting point is to note two basic principles. The first concerns the exclusive nature of the appeal commissioners' jurisdiction to decide certain types of disputes arising in the administration of this country's tax system. The present disputes concern claims for group relief. The way a taxpayer claims group relief depends on whether the claim relates to an accounting...

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